Development of MS-DOS and
PC-DOS began in October 1980, when
IBM began searching the market
for an operating system for the yet-to-be-introduced
IBM PC.

IBM had originally intended
to use Digital Research's (actually,
they had the somewhat pretentious name of "Intergalactic Digital Research"
at the time) CP/M was then the industry
standard operating system - you either ran a BASIC with disk functions, someone's
proprietary OS, or CP/M.

Folklore reports various stories
about the rift between DRI and IBM. The
most popular story claims Gary Kildall or DRI snubbed the IBM executives
by flying his airplane when the meeting was scheduled. Another story claims
Kildall didn't want to release the source for CP/M to IBM, which would be
odd, since they released it to other companies. One noted industry pundit
claims Kildall's wife killed the deal by insisting on various contract changes.
I suspect the deal was killed by the good ol' boy network. It's hard to imagine
a couple of junior IBM executives giving up when ordered to a task as simple
as licensing an operating system from a vendor. It wouldn't look good on
their performance reports. It would be interesting to hear IBM's
story...

IBM then talked to a small
company called
Microsoft. Microsoft
was a language vendor. Bill Gates and Paul Allen had written Microsoft BASIC
and were selling it on punched tape or disk to early PC hobbyists, which
was probably a step up from the company's original name and goal - they were
Traf-O-Data before, making car counters for highway departments.

Microsoft had no 8086 real
operating system to sell, but quickly made a deal to license Seattle Computer
Products' 86-DOS operating system, which had been written by Tim Paterson
earlier in 1980 for use on that company's line of 8086, S100 bus micros.
86-DOS (also called QDOS, for Quick and Dirty Operating System) had been
written as more or less a 16-bit version of CP/M, since Digital Research
was showing no hurry in introducing CP/M-86. Paterson's DOS 1.0 was approximately
4000 lines of assembler source.

This code was quickly polished
up and presented to IBM for evaluation. IBM found itself left with Microsoft's
offering of "Microsoft Disk Operating System 1.0". An agreement was reached
between the two, and IBM agreed to accept 86-DOS as the main operating system
for their new PC. Microsoft purchased all rights to 86-DOS in July 1981,
and "IBM Personal Computer DOS 1.0" was ready for the introduction of the
IBM PC in October 1981. IBM subjected the operating system to an extensive
quality-assurance program, reportedly found well over 300 bugs, and decided
to rewrite the programs. This is why PC-DOS is copyrighted by both IBM and
Microsoft.

It is sometimes amusing to
reflect on the fact that the IBM PC was not originally intended to run MS-DOS.
The target operating system at the end of the development was for a (not
yet in existence) 8086 version of CP/M. On the other hand, when DOS was
originally written the IBM PC did not yet exist! Although PC-DOS was bundled
with the computer, Digital Research's CP/M-86 would probably have been the
main operating system for the PC except for two things - Digital Research
wanted $495 for CP/M-86 (considering PC-DOS was essentially free) and many
software developers found it easier to port existing CP/M software to DOS
than to the new version of CP/M. The IBM PC shipped without an operating
system.

IBM didn't start bundling
DOS until the second generation AT/339 came out. You could order one of three
operating systems for your PC, assuming you popped for the optional disk
drive and 64k RAM upgrade (base models had 16k and a cassette player port).
These operating systems were IBM Personal Computer DOS 1.0, a version of
the UCSD p-System, which was an integrated Pascal operating system something
like the souped-up BASIC operating systems used by the Commodore 64 and others,
or Digital Research's CP/M-86, which was officially an option although you
couldn't buy it until later. Since IBM's $39.95 DOS was far cheaper than
anyone else's alternative, darned near everyone bought DOS.

Microsoft Press' "MSDOS
Encyclopedia" shows a reproduction of a late DOS 1.25 OEM brochure. Microsoft
was touting future enhancements to 1.25 including Xenix-compatible pipes,
process forks, and multitasking, as well as "graphics and cursor
positioning, kanji support, multi-user and hard disk support, and
networking." Microsoft certainly thought big, but, alas, the forks,
multitasking, and multiuser support never came about, at least in US versions
of DOS. Oddly, the flyer claims: